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Fourth Circuit Rejects “Could Have” Standard for Determining Fiduciary Breach

The U.S. Court of Appeals for the Fourth Circuit held that the plan administrator failed to follow a prudent process when it decided to forcibly divest all stock of a predecessor employer while such stock was priced at an all-time low.  As a result, the burden shifted to the administrator to prove that despite its imprudent decision-making process, its ultimate investment decision was “objectively prudent.”  The lower court ruled the decision was objectively prudent because a hypothetical prudent fiduciary “could have” made the same decision after performing a proper investigation.  Rejecting this standard for determining loss causation, the Fourth Circuit held that the proper standard is whether a reasonable fiduciary “would have” made the same decision.  Tatum v. RJR Pension Investment Committee, No. 13-1360 (4th Cir. Aug. 4, 2014).

IRS Adjusts Coverage Affordability Percentage for Tax Credit (Not Safe Harbor) Purposes

In recently released Revenue Procedure 2014-37 (the “Rev. Proc.”), the IRS adjusted the contribution percentage, from 9.5 percent to 9.56 percent, to be used in plan years beginning after calendar year 2014 to determine whether an individual is eligible for affordable employer-sponsored minimum essential coverage (“ER MEC”) for purposes of the Affordable Care Act’s premium tax credit (the “Tax Credit”). An individual is not treated as eligible for ER MEC with respect to the Tax Credit if the required contribution for plan coverage exceeds the applicable percentage of the taxpayer’s “household income.” Plan sponsors should be aware that the adjustment of the contribution percentage under the Rev. Proc. is limited to the Tax Credit; it does not necessarily apply to the affordability safe harbors for plan sponsors as provided by the final “play-or-pay” regulations under the Affordable Care Act, which specifically reference a contribution percentage of 9.5 percent as applied… Continue Reading

Operational Error if ESOP Allocated Shares Contrary to Loan Documents

Generally, shares in a leveraged ESOP may be released from the suspense account and allocated to participants’ accounts using a principal-only method or a principal and interest method. The IRS recently stated that, if an ESOP allocates shares using the principal-only method but the loan documents require the principal and interest method to be used, there is an operational failure and a prohibited transaction has occurred.  IRS Technical Advice Memorandum 201425019 can be found here.

Upcoming Deadline for Amending Certain Business Associate Agreements

The deadline is September 22, 2014 for group health plans to amend certain business associate agreements (“BAAs”) for compliance with amendments to the Health Insurance Portability and Accountability Act (“HIPAA”) Privacy, Security and Enforcement Rules (the “Changes”) that were issued by the Department of Health and Human Services (“HHS”). The Changes impact the requirements that BAAs must meet to be compliant with HIPAA Privacy and Security Rules. However, BAAs that qualified for a transition rule (i.e., generally those BAAs which (i) were entered into on or before January 25, 2013 and (ii) were not amended or renewed between March 26, 2013 and September 23, 2013), were deemed to comply with the Changes until the earlier of (i) the date the BAA was modified or renewed on or after September 23, 2013 or (ii) September 22, 2014. Consequently, any group health plan which qualified for this transition rule must amend such… Continue Reading

Circuit Courts Split on Availability of Premium Tax Credits under the ACA

On July 22, 2014, the U.S. Court of Appeals for the Fourth Circuit and the U.S. Court of Appeals for the D.C. Circuit reached opposite conclusions regarding the validity of a Treasury Regulation promulgated under Section 36B of the Internal Revenue Code of 1986, as amended (“Code”). Code Section 36B provides that premium tax credits are available for qualifying taxpayers to subsidize the purchase of qualifying health insurance “enrolled in through an Exchange established by the State” under the ACA. By regulation, the IRS has ruled that premium tax credits are available under Code Section 36B regardless of whether insurance is purchased on a state or federally-established Exchange (the “IRS Rule”). Because various penalties under the ACA (including those under the employer shared responsibility or “play-or-pay” provisions of the ACA) are linked to the availability of premium tax credits under Code Section 36B, the IRS Rule subjects more employers and… Continue Reading

EEOC’s Enforcement Guidance on Pregnancy Discrimination Addresses Contraceptive Coverage

The U.S. Equal Employment Opportunity Commission (“EEOC”) recently issued “Enforcement Guidance: Pregnancy Discrimination and Related Issues” (the “Guidance”) which addresses and clarifies various requirements of the Pregnancy Discrimination Act.  By way of background, the Pregnancy Discrimination Act was passed in 1978 and amended Title VII of the Civil Rights Act of 1964 (“Title VII”) to confirm that discrimination based on pregnancy, childbirth, or related medical conditions is a form of sex discrimination prohibited by Title VII.  As applicable to employer-sponsored health plans, the Guidance states that, because prescription contraceptives are available only for women, an employer could violate Title VII by failing to provide coverage of prescription contraceptives (whether for birth control or medical purposes) where it provides coverage for prescription drugs, devices, and services that are used to prevent the occurrence of medical conditions other than pregnancy (the “Title VII Contraceptive Mandate”).  The Guidance caveats in a footnote that… Continue Reading

Sixth Circuit Clarifies Scope of Medicare Secondary Payer Liability for Non-Group Health Plans

On July 16, 2014, the Sixth Circuit Court of Appeals confirmed that a “health care provider can bring the Medicare Secondary Payer Act’s [“MSP’s”] private cause of action against a non-group health plan that denies coverage for a reason besides Medicare eligibility.”  In Michigan Spine & Brain Surgeons, PLLC v. State Farm Mutual Automobile Insurance Co., the Court clarified its prior holding in Bio-Medical Applications of Tennessee, Inc. v. Central States Southeast & Southwest Areas Health & Welfare Fund, 656 F.3d 277 (6th Cir. 2011), which had been construed to limit MSP’s private cause of action against a “primary plan” to claims involving discrimination against planholders on the basis of their Medicare eligibility.  According to the Court, the statute’s prohibition against taking Medicare eligibility into account applies only to group health plans and not non-group health plans. When a Medicare beneficiary has other sources of insurance coverage, healthcare providers are… Continue Reading

Upcoming Deadline for Annual Reporting and Payment of Patient-Centered Outcomes Research Institute Fee

The deadline for applicable self-insured health plans (including calendar year plans) and issuers of specified health insurance policies to report and remit the Patient-Centered Outcomes Research Institute fee (“PCORI Fee”) due under the Affordable Care Act (the “ACA”) with respect to the 2013 plan or policy year is July 31, 2014. The PCORI Fee is assessed under the ACA in order to fund the Patient-Centered Outcomes Research Institute. This fee applies to plan or policy years ending on or after October 1, 2012 and before October 1, 2019. Plans and issuers should report and remit the PCORI Fee, which is based on a flat dollar amount multiplied by the average number of lives covered under the plan or policy for the applicable plan or policy year, via a second quarter IRS Form 720. Additional information regarding calculation, reporting, and payment of the PCORI Fee can be found on the IRS’s… Continue Reading

The PBGC Issues Moratorium on Enforcement of Section 4062(e) Cases

The Pension Benefit Guaranty Corporation (the “PBGC”) recently announced a moratorium on enforcement of ERISA Section 4062(e) cases. Through the end of 2014, the PBGC will cease enforcement efforts on both open and new cases. Section 4062(e) applies to employers who cease operations at a facility and, as a result of that cessation, more than 20 percent of the employees participating in the employer’s pension plan are separated from employment. In that case, the employer must notify the PBGC, which imposes penalties if the notification does not occur. The PBGC also may require the employer to provide increased financial security for its pension plan in the form of a security bond, escrow amount, or additional contributions. The PBGC advised employers to continue reporting new Section 4062(e) events, but noted that it will not take any action on such events during the moratorium.  The PBGC announcement is available here.

IRS Issues Regulations on Longevity Annuity Contracts

The IRS released final regulations relating to the use of “qualifying longevity annuity contracts” (“QLAC”).  A QLAC is a special type of annuity contract under a tax-qualified defined contribution plan, such as a 401(k) plan, which provides a lifetime income stream starting no later than age 85.  Amounts held in a QLAC are exempt from the required minimum distribution rules of the Internal Revenue Code.  Pursuant to the final regulations, only up to the lesser of $125,000 or 25% of the participant’s account balance may be invested in a QLAC.  Additionally, a QLAC can have no cash surrender value. The final regulations can be found here.

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